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O'Reilly Beats by a Penny

O’Reilly Automotive Inc. (ORLY) posted a 19.3% increase in earnings to $1.36 per share in the first quarter of 2013 compared with $1.14 in the year-ago quarter, exceeding the Zacks Consensus Estimate by a penny. Net income improved 5% to $154 million (9.7% of sales) from $147 million (9.6%) in the first quarter of 2012.

Revenues during the quarter scaled up 4% to $1.59 billion from $1.53 billion in the same period a year ago. Comparable store sales increased 1.9% compared with 6.1% in the first quarter of 2012 (both adjusted for the impact of Leap Day in 2012-quarter).

Gross profit ascended 5% to $799 million (50.4% of sales) from $762 million (49.8%) a year ago. Selling, general and administrative expenses rose 6% to $548 million (34.5%) from $514 million (33.6%) in the 2012-quarter. Operating income for the quarter increased marginally by 1% to $251 million (15.8%) from $248 million (16.2%) for the same period one year ago.

Store Information

During the quarter, O’Reilly opened 66 stores and closed 1 store, bringing its total store count to 4,041 in 42 states as of Mar 31, 2013. Sales per weighted average-store decreased to $391 from $400 a year ago.

Share Repurchases

During the quarter, O’Reilly repurchased 2.5 million shares of its common stock for $228 million, reflecting an average price of $92.35. Subsequent to the end of the first quarter and through the date of the earnings release, the company has repurchased an additional 0.6 million shares for $65.0 million, implying an average price of $101.21.

Since the inception of the share repurchase program in January 2011, O’Reilly repurchased a total of 35.2 million shares for $2.7 billion, reflecting an average price of $77.14. As of Apr 24, 2013, the company had approximately $285 million worth of shares remaining under its share repurchase program.

Financial Position

O’Reilly had cash and cash equivalents of $205.4 million as of Mar 31, 2013, which more than halved from $575.2 million as of Mar 31, 2011. Long-term debt increased to $1.10 billion as of Mar 31, 2013 from $797.5 million as of Mar 31, 2012. This translated into a higher long-term debt-to-capitalization ratio of 34.6% as of Mar 31, 2013 compared with 21.7% as of Mar 31, 2012.

In the quarter, net cash flow from operations declined 45.4% to $226.3 million from $414.5 million in the previous year quarter. The decrease in cash flow was primarily attributable to higher accounts receivable. Meanwhile, capital expenditures (net) decreased marginally to $73.1 million from $75.0 million in the same quarter of 2012.

Guidance

O’Reilly has projected earnings per share in the range of $1.46–$1.50 and consolidated comparable store sales to increase in a band of 4% to 6% for the second quarter of 2013.

For full year 2013, the company raised its earnings per share guidance to the range of $5.64 to $5.74 from the earlier range of $5.57 to $5.67. However, it reiterated its guidance of consolidated comparable store sales increase of 3% to 5% for the year. The company also reiterated revenue guidance of $6.6 billion to $6.7 billion, upgraded gross margin guidance to 50.0% to 50.4% from 49.9% to 50.3%, and reiterated operating margin guidance between 15.8% and 16.2% for the year.

O’Reilly reinstated capital expenditures guidance of $385 million to $415 million and free cash flow guidance between $450 million and $500 million for the year.

Our Take

O'Reilly Automotive is the third largest specialty retailer of automotive aftermarket parts, tools, supplies, equipment, and accessories in the U.S., selling products to both Do-it-Yourself (:DIY) customers and Do-it-for-Me (:DIFM) or professional installers. Currently, it retains a Zacks Rank #3 (Hold).

Another auto parts retailer, Pep Boys — Manny, Moe & Jack (PBY) posted a broader loss of $14.5 million or 27 cents per share in the fourth quarter of fiscal 2012 ended Feb 2, 2013 compared with $4.4 million or 8 cents in the corresponding quarter of prior year as well as the Zacks Consensus Estimate of 5 cents.

CarMax Inc. (KMX) with a Zacks Rank #2 (Buy) is worth to look in the automotive replacements parts industry.